Regulator calls for one charge for funds
The Financial Conduct Authority has asked companies to put an end to complex charges for funds.
Financial services regulator the Financial Conduct Authority (FCA) has called on companies to present clearer fund charges to customers.
This follows a review the FCA conducted of marketing information on funds from 11 unnamed firms, ranging from asset managers to banks to wealth managers.
Changing charges
It found some firms provided a consistent charge figure across all of its information, while more than half provided different figures in different places. It also found that some companies offered “poor descriptions of administration charges that did not accurately reflect the operation of the charge”.
The FCA now wants companies to use a figure that takes into account a combination of charges, such as the ongoing charges figure (OCF) or total expense ratio (TER), rather than the annual management charge (AMC). The AMC solely relates to the investment management of the fund, but there are often other charges, such as initial charges, administration charges and performance fees, that it doesn’t take into account.
The FCA says companies should use a standard figure across all of their material on a fund, from the Key Investor Information Document to their websites.
FCA director of supervision Clive Adamson said: “We believe that it is important for investors to clearly understand and compare charges across the market as this, together with fund performance and risk profile, are the key areas that they should look at.”
Industry body the Investment Management Association (IMA) also called for one standard charge to be used.
The IMA’s Chief Executive Daniel Godfrey said: “The IMA calls on all market participants, fund managers, platforms, IFAs, data providers and the media to respond by abandoning all use of AMCs and by the exclusive use of the OCF in marketing literature, advice and commentary."
Call for action now
However, there is no obligation for companies to do this as a result of the FCA's review. And that has attracted the ire of Gina Miller, who spearheads the True and Fair Campaign for clearer investment charges.
She said: “The fund management industry and the IMA have been considering unfair charging for years and have clearly concluded that it’s in their interest because the practice continues and consumers are still being ripped off.”
The True and Fair Campaign is calling for a whole-of-market review, an independent body to regulate the investment and fund management industry, and one charge in pounds and pence.
Future European legislation will require companies to spell out charges more clearly via a universal key investor document but that is a year or two away.
Confusion reigns
In the meantime, just a cursory look at a few different investment platforms for DIY investors reveals a marked difference in how fund charges are presented. Some present one clear figure, either the OCF or the TER, while others have two or more listed. And some present all charges upfront, while others only reveal the true picture when you look at a fund’s factsheet.
Of course, you’ll have to take other management fees, whether that’s by a platform or a broker or a financial adviser, into account too.
But one figure in pounds and pence per fund would be a massive step in the right direction.
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